Investor lending decline is detrimental to renters, expert says

He cited the latest housing finance figures which showed that for the year ending November 2022, lending for investor loans have slumped by 23.2 per cent - led by declines in New South Wales, Queensland and Victoria. 

“On a monthly basis investor lending has fallen by $1.4 billion in New South Wales, $0.8 billion in Victoria and $0.6 billion in Queensland from January compared to November 2022,” Mr Young noted. 

The leader of the independent property group said that the rising interest rates - brought on by the Reserve Bank’s monetary policy tightening cycle to fight surging inflation - was the main culprit for the steep decline. 

“Investor lending peaked in January 2022, but by November 2022 investor lending in these three States had fallen collectively by $2.8 billion because of the rising interest rates.”

By estimate, he said that the missed out $2.8 billion would have funded new accommodation for over 10,000 tenants.  

“This fall off in investor lending is putting pressure on the rental market. Over the past year, asking rents in Sydney have jumped by over 30 per cent while in Melbourne and Brisbane they have surged by more than 20 per cent,” he stated. 

Separate data released by CoreLogic has revealed Australian rents rose an unprecedented 10.2 per cent throughout 2022, even as the pace of rental growth slowed during the backend of the year. 

Mr Young added that their organisation has been flagging that rising interest rates would result in higher rents for tenants due to investors being unable to afford the new higher interest rates on loans. 

 And while the latest investor lending figures do not include the impact of the 0.25 per increase in interest rates during December 2022 and the likely impact of further increases in interest rates during 2023, the expert cautioned further tightening of the screws on investor lending would bring more pain to the rental market- with renters bearing the brunt of the impact. 

“Unless the RBA stops increasing interest rates, then Property Club predicts rents will continue to skyrocket leaving thousands of more people homeless in Australia,” he stated.  

In addition to higher interest rates, Mr Young cited that tighter serviceability requirements, time limits on investor only loans and higher buffers rates introduced by Australian Prudential Regulation Authority (APRA) in 2021 for investor loan borrowers are also worsening the rental crisis. 

“As a result, there is now a growing gap between investor lending and owner occupier lending over recent years,” Mr Young stated. 

With this, he said that the Property Club “strongly urges the RBA not to increase interest rates during 2023 and for APRA to remove the restrictions on investor lending it introduced over the past several years.”